May 13, 2016
To manage overhead costs associated with running the business, companies will often hire employees dedicated to ensuring that capital is spent efficiently. At its core, this is the role of a procurement department.
At the risk of over-simplifying, there are three basic ways that a procurement department manages spend and reduces cost.
This is the point at which a GPO becomes most important. After going through these three steps, savings margins are largely reduced. Joining a group purchasing organization allows procurement to once again make effective cost saving strides.
A GPO gathers members who are interested in buying similar products. With the group’s spend volume as a leverage point, the GPO negotiates contracts with suppliers to obtain preferable prices and contract terms.
By using a GPO’s agreement, a company saves the time and resources it would use sourcing its own and consequently accesses the savings more quickly.
Because all GPOs provide access to leveraged agreements, the level of contract management is the differentiator. An advanced GPO manages the lifecycle of supplier contracts by:
These activities require an extensive time investment when performed correctly, and being part of a GPO removes that time expenditure from member companies.
Additionally, the most sophisticated GPOs have partner-based relationships with their suppliers that focus on the total value of the contract instead of simply offering the lowest price.
Nicole Shedden: Marketing Strategist at Corporate United
As a marketing strategist for Corporate United, Nicole's goal is to get the word out about group purchasing organizations – CU in particular. Since GPOs free up time, money and resources for indirect procurement teams, she focuses most of her blogging on those three elements. Nicole has been marketing to a procurement audience for nearly a decade; prior to that, she worked in sales and marketing consulting.